You already budget your money. You’ve budgeted every dollar you’ve ever spent.
Think about it:
- Money enters your life.
- You decide how to use it.
- You use it.
Any time you buy anything, you decide how to use the money before you spend it. Sure, you might be making the purchase within minutes or hours of the decision, but the decision always precedes the purchase.
Because you always decide what to buy before you buy it, you’re a budgeter. Accept it.
And budgeting works. It allows you to spend consciously, intentionally, and guilt-free – if you do it right.
Problem is, most people use a high-stress approach to budgeting and spending their money:
Do I want the thing?
Do I have money in my bank account?
If Yes >> buy.
If No >> check credit card for availability.
If money available on credit card >> buy.
That’s a pure stress budgeting approach. All your account balances can tell you is whether the current purchase is going to max you out right now. They don’t tell you anything about the rest of your needs and wants, which is why “budgeting with account balances” forces you to run through an (always incomplete) mental checklist of upcoming bills and plans just as you’re trying to make the current spending decision.
Your mental checklist will always fail, so your best case scenario is living check to check as your real wants and needs wrestle with your in-the-moment wants for the last few dollars in your checking account. It’s no way to live.
Do you want to be an effective, happy, low-stress budgeter?
The key to happy budgeting is working with accurate, up to date information about your money, your needs, and your wants:
Do I want the thing?
Can I buy it without affecting the other purchases I need and want to make before I get paid again?
If yes >> buy.
If no >> pause before buying.
Notice I didn’t don’t don’t buy. I said pause before buying.
See, when you’re working with an effective budget you have the opportunity to really evaluate the purchase against your other wants and needs. You open the budget, look at the different jobs you’ve given your money, and ask a few questions about the current purchase:
1. Have I already set aside some money for this category?
If you’re trying to decide whether to buy a new pair of jeans, you can check to see whether you’ve got money set aside in a clothing category. If you’re deciding whether to go out with friends, check your entertainment or eating out categories. If you’ve already assigned dollars to pay for the type of purchase you’re considering – you get to spend the money without guilt. That’s effective budgeting.
2. What would I give up in order to make this purchase?
But what if you haven’t set aside money specifically for the type of purchase you’re considering? Should you absolutely not spend the cash? Not necessarily. You just need to look at your budget and figure out where the money could come from.
If it’s a new pair of $70 jeans you want, you’ll need to find $70 in your budget to make the jeans happen.
You have $40 left in your ‘Clothing’ category, but that leaves you $30 short. You take $10 from ‘Restaurants’ and $20 from your ‘New iPhone’ category.
There you go – you’ve found the $70 to pay for the jeans. Yes – your budget required you to give something up for the sake of the jeans: a little less eating out and a slightly longer wait for the new iPhone.
Does that mean the budget restricted you? Held you back? No way. All it did was allow you to weigh the value of the new jeans against the other needs and wants in your life. If the new iPhone is a bigger priority than the new jeans – you’d have held off on the jeans for the sake of the phone.
That’s the beauty of budgeting – it gets all your financial needs and wants in one place, allowing to weigh the importance and desirability of one purchase against the realities of your financial life.